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Were Hedge Funds Right About Health Catalyst, Inc (HCAT)?

Debasis Saha

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Health Catalyst, Inc (NASDAQ:HCAT) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Health Catalyst, Inc (NASDAQ:HCAT) investors should be aware of a decrease in hedge fund interest lately. Our calculations also showed that HCAT isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Samuel Isaly - Orbimed Advisors

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader's corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's go over the key hedge fund action surrounding Health Catalyst, Inc (NASDAQ:HCAT).

Hedge fund activity in Health Catalyst, Inc (NASDAQ:HCAT)

At the end of the fourth quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HCAT over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HCAT A Good Stock To Buy?

More specifically, Alyeska Investment Group was the largest shareholder of Health Catalyst, Inc (NASDAQ:HCAT), with a stake worth $10.8 million reported as of the end of September. Trailing Alyeska Investment Group was Perceptive Advisors, which amassed a stake valued at $9.8 million. OrbiMed Advisors, Rock Springs Capital Management, and SCGE Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Perceptive Advisors allocated the biggest weight to Health Catalyst, Inc (NASDAQ:HCAT), around 0.2% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, designating 0.18 percent of its 13F equity portfolio to HCAT.

Judging by the fact that Health Catalyst, Inc (NASDAQ:HCAT) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of fund managers who sold off their full holdings in the third quarter. Intriguingly, Panayotis Takis Sparaggis's Alkeon Capital Management sold off the biggest stake of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $15.9 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dumped about $1.8 million worth. These transactions are important to note, as total hedge fund interest was cut by 5 funds in the third quarter.

Let's check out hedge fund activity in other stocks similar to Health Catalyst, Inc (NASDAQ:HCAT). We will take a look at The E.W. Scripps Company (NYSE:SSP), SM Energy Company (NYSE:SM), Benchmark Electronics, Inc. (NYSE:BHE), and Triumph Group Inc (NYSE:TGI). This group of stocks' market valuations are similar to HCAT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSP,12,149633,-5 SM,22,126463,1 BHE,19,52735,4 TGI,16,90783,2 Average,17.25,104904,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $38 million in HCAT's case. SM Energy Company (NYSE:SM) is the most popular stock in this table. On the other hand The E.W. Scripps Company (NYSE:SSP) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Health Catalyst, Inc (NASDAQ:HCAT) is even less popular than SSP. Hedge funds dodged a bullet by taking a bearish stance towards HCAT. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately HCAT wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); HCAT investors were disappointed as the stock returned -27.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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